Chinese Economy Puts Damper on US Exports

Story first appeared in USA Today.

The slowing economies of China and other emerging nations are stunting foreign demand for U.S. goods, jeopardizing one of the Obama administration's most ambitious economic initiatives.

In his 2010 State of the Union address, President Obama set a goal to double U.S. exports in five years — from $1.58 trillion in 2009 to $3.15 trillion by the end of 2014. With the world coming out of recession then, exports rebounded strongly at first — soaring 16.7% in 2010 and nearly 15% last year to $2.1 trillion, putting the U.S. ahead of schedule in meeting its goal.

A growing number of economists and trade experts say that performance is unlikely to be matched this year — or next — with much of Europe in a mild recession and two of the world's largest emerging economies, China and India, decelerating from a torrid pace of double-digit annual expansion.

The doubling of U.S. exports was an aspiration when it was disclosed, and now it seems an increasingly difficult objective to meet.

Exports are a key driver of the American economy, accounting for more than half its expansion last year. For every $1 billion of U.S. goods or services sold overseas, about 7,000 American jobs are created.

Driving exports is just one component of growing an even healthier economy. With 95% of the world's consumers outside the U.S., it would be a wasted opportunity not to promote our goods and services overseas.

Yet U.S. export growth could slow to 5% this year, and then climb to 7.5% or 8% for the next two years. To meet its goal, the U.S. needs about twice that growth rate — an average annual rise of 14.4% in exports — for each of the next three years.

U.S. exports to China, the largest export market outside of North America, have already decelerated from as high as 30% year-over-year growth rates in early 2011 to the single digits at the end of the year. They grew at a slower pace last year than U.S. exports to the rest of the globe as the world's second-largest economy grappled with high inflation and the threat of a housing bubble. U.S. exports of agricultural products, computer electronics and primary metals also fell sharply to China last year, after adjusting for price increases, according to an analysis by Brookings Institution, a Washington, D.C., think tank.

As China's growing demand for goods from elsewhere in the world slips as well, that could weigh on other countries' economies, and in turn, their desire for U.S. goods. China's voracious appetite for commodities such as iron and soy has fueled economic growth in countries including Australia, Chile and Brazil.

A Chinese slowdown would ripple through trade chains and put a squeeze on U.S. exporters, whether they ship directly to China or to other destinations. China has also lowered its 2012 economic growth target below 8% for the first time since 2005. Emerging nations such as India, Brazil and South Africa— which, along with China, are among the priority markets identified by the Obama administration because of their rising demand for U.S. goods — are also paring back expectations for expansion. And the developed world is grappling with a fresh recession in Europe, a slow Japanese recovery from last year's nuclear meltdown and sluggish growth elsewhere.

Mexico and Canada remain the U.S.' largest single export destinations, while the countries within the European Union account for roughly one-fifth of U.S. exports. Yet demand for American goods is rising fastest in emerging economies. Overall, 43% of U.S. exports now go to developing countries, compared with 32% a decade ago and 36% just five years ago, according to the International Monetary Fund.
The problem is, while the U.S. needs fast-growing emerging markets in order to meet its export target, there's little that the Obama administration can do to drive such growth in these markets.

With the outlook for the world economy constantly changing, it's understandable that there will be challenges ahead in meeting the ambitious goals. However, by striving to meet this goal, we're still helping U.S. companies to increase their presence overseas, export more products, and create more jobs here at home. Factory Audits and Qualifications Control is also needed to make sure that these exported products are of appropriate quality.

It's too early, to declare the export initiative to be successful or unsuccessful.

China's cooling growth chills U.S.

China's slowing growth is already starting to be felt across the U.S.

In Oregon, goods exported to China — the state's largest market — fell about a fifth last year. State exports of electronics, agricultural products and primary metals to the country also plunged, mirroring the national trend. Other states, from Nevada to Montana and Idaho, also saw merchandise exports to China drop in 2011.

Even so, the swelling middle class in China — as well as in other emerging markets in Asia and Latin America— holds huge opportunities for Oregon companies.

Portland is among a small group of cities forging ties with government officials and the corporate sector in fast-growing emerging markets such as China, Brazil, Vietnam and the Philippines. Portland's thinking is that, the more diversified the companies and the city, the less likely they are to lose employment.

That's also the hope for Portland shipbuilder Vigor Industrial, which has set its sights on Brazil, Chile and South Africa.

To capitalize on the boom in oil exploration, Vigor aims to export 200-foot-long vessels to Brazil that ferry people and equipment to offshore drilling platforms. It's already exporting to Chile filters that remove impurities from methane gas, which fuels generators used to make electricity. The company made the filters for a client and has looked at exporting them to South Africa as well. It also hopes to export ferries to Canada.

Had export relationships been established prior to the worldwide recession, the shipbuilding division may have done better.  The need for Manufacturing Engineering Services and Logistics Services also could have been established to ensure that product exported was at a premium.

But as growth cools again in the global economy, so could demand for Vigor's vessels.

Trade disputes cause worry

Even in a roaring global economy, it can be highly challenging to sell American goods in emerging markets such as China.

For instance, the growing number of trade disputes between the U.S. and China over poultry, solar cells and other products is a source of uncertainty. The fear is that escalating tensions could ignite a trade war that hurts manufacturers in both countries.

The U.S. buys nearly four times more from China than it sells — $399 billion compared with $104 billion in 2011 — yet exports from the U.S. to China have been rising at a faster pace than the other way around.

Market access also remains a key issue for U.S. companies doing business in China, as do Logistics Services to aid in moving the exported product..

And Chinese companies are coming into their own, competing with American firms for business in emerging and developing markets.

But perhaps the biggest obstacle for U.S. companies trying to tap into China's ballooning middle class is that the economy's growth remains skewed toward investment rather than consumption of goods.


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Glossy Paper From China to Face U.S. Import Duties

Bloomberg / BusinessWeek

 

The U.S. will impose dumping and anti-subsidy duties on glossy paper from Indonesia and China after the U.S. International Trade Commission ruled that domestic makers may be harmed by low-cost imports.

The panel’s 6-0 vote yesterday followed by hours a World Trade Organization decision that applying both sets of duties on China doesn’t violate trade rules. China has called the duties protectionist, while lawmakers and makers of steel, paper and textiles say they are crucial to countering what they call unfair trade practices.

“This decision by the ITC will help level the international playing field for our manufacturers and make it possible for our companies to sustain and create jobs,” Representative Michael Michaud, a Maine Democrat, said in a statement after the decision.

The ITC ruling is the final step needed to set tariffs on imports valued at $260 million of the glossy paper, used to print magazines and art books. NewPage Corp., Appleton Coated LLC and a unit of Sappi Ltd. sought the duties, citing China’s and Indonesia’s policies of debt forgiveness, cheap power and low-cost access to timber for domestic producers.

The dumping duties will reach as much as 135.83 percent for China and 20.13 percent for Indonesia, the Commerce Department said last month. Countervailing duties to offset subsidies will be as much as 17.94 percent for Indonesia and 178.03 percent for China, the agency said.

Preliminary Duties

The Commerce Department imposed preliminary duties in April and May. Paper importers have been depositing those duties pending action by the ITC. The panel’s decision sets the stage for the tariff rates to take effect within days.

Gold East Paper Jiangsu Co. must pay combined duties of 25.24 percent, the department said. Chinese companies not listed in the case face a 153.47 percent duty, according to the statement.

Asia Pulp & Paper, a unit of Indonesia’s Sinar Mas Group, must pay a 38 percent duty on its exports, according to a company statement.

“We are extremely disappointed in the commission’s decision,” said Terry Hunley, acting president for the company in the U.S. “We believe there are very strong grounds for appeal, and we will begin pursuing our appeal options immediately.”

China Leads Complaints

China, which faces the most unfair trade complaints worldwide, has criticized the U.S. decision to impose dumping and countervailing duties on imports from that country. The U.S. categorizes China as a non-market economy, which raises the anti-dumping duties its products face in the U.S.

In its case at the WTO, China argued that the U.S. was punishing its products twice by imposing both sets of duties.

The WTO judges rejected 8 of 11 complaints by China against U.S. duties on imports of steel pipes, some off-road tires and woven sacks in its decision announced in Geneva yesterday.

“This was a major victory for the U.S.,” said Alan Price, a lawyer at Wiley Rein LLP in Washington who has represented Nucor Corp. in trade cases.

China Reports March Trade Deficit on Surging Imports

Bloomberg

China posted its first trade deficit in six years in March even as the yuan stayed pegged to the dollar, aiding government efforts to play down the currency’s role in global economic imbalances.

The $7.24 billion shortfall, reported by the customs bureau on its Web site today, compared with a median forecast for a $390 million deficit in a Bloomberg News survey of 26 economists. Imports surged 66 percent from a year earlier as exports gained 24 percent.

A trade deficit for a single month may not persuade the U.S. to ease pressure on China to scrap the 21-month-old peg amid calls in Congress for the nation to be branded a currency manipulator. A return to a surplus is likely as soon as this month after seasonal labor shortages hurt exporters of clothes, shoes and bags in March, the customs bureau said yesterday.

The Asian nation may get “some respite from pressure to do more over its exchange rate,” said Mark Williams, a London- based economist at Capital Economics Ltd. “But the calm won’t last. China’s trade surplus will soon reappear.”

Williams expects the yuan to resume its appreciation “in the next few weeks” after being held at about 6.83 per dollar since July 2008. U.S. Treasury Secretary Timothy F. Geithner’s unscheduled visit to Beijing last week fanned speculation that China may be ready to ditch a currency policy adopted to counter the global crisis.

U.S. Trade Gap

While China reported deficits in trade with nations such as Japan and South Korea, today’s figures showed a $9.9 billion surplus with the U.S.

First-quarter import growth was the most since records began in 1980 as the nation’s demand aids the “global economic recovery and rebalancing,” Huang Guohua, the head of the customs bureau’s statistics department, said yesterday. “The most important reason for the March deficit is China’s booming domestic demand.”

Vehicle imports almost quadrupled in March from a year earlier, the customs bureau reported today.

U.S. Commerce Secretary Gary Locke said this week that the financial crisis made it “very clear” that a rebalancing of the global economy is needed. China should boost consumption and move to a market-based currency, he said in an interview with Bloomberg Television.

In contrast, China’s commerce ministry said today that the exchange rate is not the decisive factor in the trade balance. Last year, the gap with the U.S. swelled to $227 billion, according to U.S. data.

Rising Import Costs

Import prices rose 17 percent in March from a year earlier on higher costs for raw materials, customs official Huang said. Net imports of crude oil were the second-highest on record, today’s data showed.

“Imported inflation” adds more pressure for currency gains, said Liu Li-Gang, a Hong Kong-based economist at Australia & New Zealand Banking Group Ltd.

The median forecasts of economists surveyed by Bloomberg News were for a 55.7 percent jump in imports and a 27 percent gain in exports. The deficit compared with a $7.6 billion surplus in February and an $18.6 billion surplus in March 2009.

“The deficit is not sustainable,” Huang said yesterday, adding that the failure of some migrant workers to return to work immediately after a Chinese New Year holiday probably capped exports.

The first-quarter surplus fell 77 percent from a year earlier to $14.49 billion. The smaller numbers are likely to continue as exports face headwinds including a fragile global recovery and protectionism and imports stay strong, Huang said.

Betting on Yuan Gains

Non-deliverable yuan forwards, which weakened yesterday ahead of the data, indicate that the currency may gain 3.1 percent against the dollar in the next 12 months. On April 8, the contracts rose by the most this year after the New York Times reported that the Chinese government is “very close” to announcing a change in currency policy, which may include a small, one-time jump in the yuan.

Billionaire investor George Soros said yesterday that China and the U.S. have probably come to an agreement on the yuan.

“What the arrangement is, I’m not privy to, but I think there is an understanding and there will be flexibility on both sides,” Soros said in a Bloomberg Television interview.

Former U.S. Treasury Secretary Henry Paulson said today that a flexible currency would be in China’s interests, and some companies say they’re ready for a change. Hangzhou-based Wanxiang Group Co., the nation’s largest auto-parts maker, can cope with a gradual advance, though a quick appreciation would be “disruptive,” Chairman Lu Guanqiu said in a March 8 interview in Beijing.

China’s trade deficits with Japan and South Korea widened in March from the previous month, while surpluses with the European Union and the U.S. were smaller.

Chinese officials have expressed caution about strengthening the yuan even after growth in the world’s third- largest economy quickened to 10.7 percent in the fourth quarter, stoking concern at inflation and asset-bubble risks.

China Surpasses Germany, Becoming World's Top Exporter

USA Today

China overtook Germany as the world's top exporter after December exports jumped 17.7% for their first increase in 14 months, data showed Sunday, in another sign of China's rise as a global economic force.

Exports for the last month of 2009 were $130.7 billion, data from the General Administration of Customs showed. That raised total 2009 exports to $1.2 trillion, ahead of the $1.17 trillion for Germany forecast by its foreign trade organization, BGA.

China's new status is largely symbolic but reflects the ability of its resilient, low-cost manufacturers to keep selling abroad despite a slump in global consumer demand due to the financial crisis.

December's rebound was an "important turning point" for exporters, a customs agency economist, Huang Guohua, said on state television, CCTV.

"We can say that China's export enterprises have completely emerged from their all-time low in exports," Huang said.

Stronger foreign sales of Chinese goods could help to drive the country's recovery after demand plunged in 2008, forcing thousands of factories to close and throwing millions of laborers out of work.

Boosted by a $586 billion stimulus, China's economic expansion accelerated to 8.9% for the third quarter of 2009 and the government says full-year growth should be 8.3%.

Economists and Germany's national chamber of commerce said earlier the country was likely to lose its longtime crown as top exporter.

German economist Volker Treier predicted recently that Germany was set to lose the "world export championship" because of China's bigger size and higher population.

"By 2010, this title will be history, because the Chinese will simply outdo us due to their bigness," Treier told the German news agency DAPD.

He said it may not be a bad thing, either, "because if China grows, this pushes the world's economy — and that's good for export-oriented Germany as well."

China is best known as a supplier of shoes, toys, furniture and other low-tech goods, while Germany exports machinery and other higher-value products. German commentators note that their country supplies the factory equipment used by top Chinese manufacturers.

China surpassed the United States as the biggest auto market in 2009 and is on track to replace Japan as the world's second-largest economy soon. China passed Germany as the third-largest economy in 2007.

China's trade surplus shrank by 34.2% in 2009 to $196.07 billion, the customs agency said. That reflected China's stronger demand for imported raw materials and consumer goods while the United States and other economies are struggling and demand is weak.

The United States and other governments complain that part of China's export success is based on currency controls and improper subsidies that give its exporters an unfair advantage against foreign rivals.

Washington has imposed anti-dumping duties on imports of Chinese-made steel pipes and some other goods, while the European Union has imposed curbs on Chinese shoes.

The U.S. and other governments also complain that Beijing keeps its currency, the yuan, undervalued. Beijing broke the yuan's link to the dollar in 2005 and it rose gradually until late 2008, but has been frozen since then against the U.S. currency in what economists say is an effort by Beijing to keep its exporters competitive.

The dollar's weakness against the euro and some other currencies pulls down the yuan in markets that use them and makes Chinese goods even more attractive there, adding to China's trade surplus.

Even though China overtook Germany as top exporter, the customs agency said total 2009 Chinese trade fell 13.9% from 2008.

Commodities were among China's key imports, the agency said, with the country bringing in 630 million tons of iron ore last year, up 41.6% from the previous year, and 200 million tons of crude oil, an increase of 13.9%, as prices for both commodities fell.

Economists say China has been rushing to build up stockpiles at bargain prices since crude oil and other commodity prices plunged in 2008. That motive, more than a revival in actual industrial demand, has driven its recent import boom of oil, copper and other metals.